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Get ahead of the curve in ESG and green finance

Environmental, Social and Governance (ESG) have become critically important for businesses of all shapes and sizes to include in their strategic decision making. This trend has resulted in a surge of activity designed to make all operations more sustainable.  The FinTech sector responded quickly and rapidly emerging as pioneers who meet consumer demand and regulatory compliance.  The FinTech sector has demonstrated the capacity to innovate in green finance and climate finance to support customers committed to making a positive environmental and societal impact, while also generating strong returns. Read on to discover more about ESG and green finance.

What is ESG and why has it become hot topic in recent years?

ESG goes beyond the scope of green finance and combating climate change. It encompasses a variety of activities that focus on creating long-term value by taking into account environmental, social, and governance considerations to ensure treating people fairly, ensuring sustainability for years to come and putting the right governance in place. The inclusion of environmental, social, and governance criteria into the analysis process can provide valuable insight beyond traditional financial metrics. It will also provide critical data to comply with SFDR*, SECR**, CSRD*** and Scope 1-3 cause of greenhouse emissions****.

What is the difference between ESG and green finance?

As the global shift towards sustainable investments continues to gain momentum, so does green finance; a concept which seeks to align financial and environmental interests. The UN Environment Programme outlines that while ‘sustainable finance’ considers ESG alongside economic concerns, ‘green’ financing is specifically dedicated to addressing climate issues – falling within its larger framework of environmentally-oriented finances.
A key part of the modern investment landscape has become ESG considerations. This holistic approach to investing seeks to create a long-term value by looking beyond simple financial returns and focusing on environmental, social, and governance factors that promote fair treatment for all as well as sustainable outcomes over time.

Why Should FinTech Care about ESG?

ESG is becoming increasingly recognised as an important factor for consumers when making decisions about where it invests. The millennial generation and GenZ, a growing portion of the working population, have become influential voices and are recognising that their spending power can contribute to a greener future. This shift in consumer preferences has resulted in a huge opportunity for FinTech companies to facilitate and funnel this interest in sustainable and impact investments.

In addition, SME’s will be increasingly requested for ESG related data including Carbon Accounting. SME’s may fall out with the scope of current legislation for Carbon Reporting such as SECR**, however, they may provide goods and or services into an organisation captured within the scope of the legislation. In this scenario, SME’s will be requested/required to provide information for their customer to comply. It is therefore good business practise to be prepared for this scenario and take positive measures now.

How can FinTech can lead by example?
Keeping up with ESG trends and regulation is critical for FinTech companies since green finance is undergoing a dynamic shift in response to consumer and governmental pressures. The FinTech sector should pay close attention to enhanced regulation like SFDR*, SECR**, CSRD*** and Scope 3****. In addition, the ISO***** is spearheading the development of a comprehensive set of standards to streamline and standardise green finance initiatives and integrate ESG measurement.

As a fast moving and dynamic sector members of the FinTech sector can seize the opportunity to lead by example and help the transition to a decarbonised economy by developing green finance tools.

Here are 3 ways FinTech is supporting climate finance:

  • Using artificial intelligence (AI) and big data to help identify areas where investment sustainability would have the biggest impact
  • Creating financial products that incentivise sustainable behaviour (such as rewards for decarbonising, recycling or using public transport)
  • Using cheaper mobile apps and other digital tools to help people track their carbon footprint (carbon accounting, supply chain ESG monitoring and scoring, training and education, decarbonisation journey and reporting)

In conclusion the FinTech’s sector has a unique opportunity to lead the way towards green finance by developing innovative solutions that encompass ESG. Adopting best practices aligning with the latest sustainable finance regulations, like SECR or Scope 3, can help them capture new business opportunities and create economic value that drives global sustainability. The hidden value is in the data capture that monitors decarbonisation, assisting companies to attract and be approved for green finance which further attracts better APR’s and is fast becoming the the norm.

By taking advantage of these initiatives, FinTechs can set the course for green finance worldwide, contributing to a more decarbonised economy and helping promote broader ESG values.

Join Pulse Market’s ESG Connect today: a community sharing knowledge and gaining certifications.

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